Investment businesses positioning themselves for a future shaped by artificial intelligence should maintain their focus on where they want it to be in the long term. And they should not be alarmed by the massive job losses that will stem from AI adoption. The global economy will be supported by productivity gains that the AI revolution will bring, easing the impact of an ageing workforce.
These conclusions emerged on Wednesday in Brussels from the two keynote speeches at Investment Officer’s 2023 Portfolio Day. Belgian economist Jan Longeval of Kounselor Consulting and deputy professor of Vlerick Business School made clear that AI will at least partially remediate the economic decline stemming from ageing during the coming decades. Dutch futurist Willem Peter de Ridder had reassuring specific advice for investment managers wondering what the AI transformation means for them.
“Build your strategy from later to now. Try to be at the end of the curve and look at what you need to do now to get there,” said De Ridder after outlining four different AI scenarios that could play out. “Don’t let yourself be surprised by Amara’s law, which shows that we tend to overestimate the impact of new technology on the short term but underestimate the long-term effects.”
Hosted at the Karel van Lotharingen Palace in the centre of Brussels, Investment Officer’s Portfolio Day brought together close to a hundred Belgian investment professionals under the theme “Artificial Intelligence; Friend or Foe?” The event was sponsored by Aegon Asset Management, Invesco, Degroof Petercam Asset Management and La Financière de l’Echiquer.
Digital Darwinism
Looking into the future, De Ridder spoke about “digital Darwinism,” a trend being accelerated now that AI is set to revolutionise the way we work. “We have no choice but to adjust,” he said. “It’s not the strongest that will survive; it’s the ones that make the best adjustments. AI presents an enormous opportunity, but one that needs to be managed well.”
Artificial intelligence will lead to “a total robotisation of routines,” he said. That poses the question: what do I leave to the machines and what is there to do for people. His answer is clear. “Routine is for robots. Creativity is for people.”
De Ridder, drawing input from ChatGPT, identified nine different applications of AI in the investment sector: trade algorithms, portfolio management, forecasting, client services and chatbots, personal advice, Regtech, ESG analysis, due diligence and document creation. And for all of these applications, tools already exist, he said, highlighting various different investment software products.
For each of these, the use of data is seen as crucial. De Ridder said those getting into AI should expect to spend 80 percent of their time on cleaning of data that goes into the applications. Furthermore, investment firms need to consider the issue of ‘explainability.. “Can I explain what happens here?” De Ridder asked. “Assurances need to be built into the system.”
Four scenarios
The futures laid out four different scenarios for how AI will reshape investment management and the roles of people working in the sector, with the horizontal axis showing the speed of technological progress, and a vertical axis showing the speed with which AI is adopted. With slow progress, AI can be useful as a supporting tool or a niche tool.
Under a rapid pace of technological progress, AI will either replace or disrupt investment professionals. The disruption scenario is the most dangerous one, De Ridder said, as this means that there will be room for new types of market entrants in investment services. These would very likely be data companies. “The data guys can possibly push financial services providers out of the market.”
Meanwhile, global demographics also stand to be disrupted in the course of the coming decades. Longeval cited UN studies pointing to a further addition of 2.2 billion people to the global population by the year 2100, but explained that most of this growth will be in sub-Saharan Africa. China will enter a very difficult period, with a “phenomenal” contraction of its population.
China won’t overtake the US
Because of ageing, it is a “mathematical certainty that China will not overtake US economy in 10 or 15 years from now,” Longeval said. The US working population at the same time is expected to stabilize around 200 million people.
Chinese President Xi Jinping’s idea of overtaking the US economy as the biggest in the world “is simply not going to happen,” Longeval said.
That demographic context makes one thing very clear, he said. “We need an industrial revolution because we need productivity gains.”
Longeval referred to two major studies published earlier this year by Goldman Sachs and by the Brookings Institution. Goldman Sachs in March reviewed the “potentially large effects” of AI on economic growth, projecting that generative AI can automate some 300 million jobs. Brookings’ study discussed novel applications in finance, among other areas.
“It’s clear that 25 percent of all jobs can be automated,” said Longeval. “This can boost global productivity by 1.4 percent in the next ten years.”